Debt Consolidation Canada

What is the Definition of Debt Consolidation?

If you are wondering about debt consolidation, you may be finding yourself buried under consumer debt.  Over the last couple decades, it has been increasingly easy for consumers to get into more debt than they could realistically handle.  Many Canadians are finding that the home loans, education loans, auto loans, credit cards and other forms of credit they have taken out have added up to overwhelming minimum monthly payments.  Add compounding interest and you’ve got a recipe for credit disaster!  The consumer is not always at fault.  There may be special circumstances that substantiated or necessitated getting into so much debt.  There’s also much talk these days about predatory lending practices that have forced thousands of families into unnecessary debt.  For all these reasons and more, many people are turning to debt consolidation as a means of improving their debt and credit scenario.  Debt consolidation, simply put, is the pooling of your various monthly paid debts into one single payment.  Often times, debt consolidation is accompanied by reduction of interest by means of negotiating with creditors.  Let’s review some of the different types of debt consolidation methods that are available.

Debt Consolidation Specialists

Also known as credit counselors, debt consolidation specialists work on your behalf to negotiate with your various creditors. Usually these specialists have working relationships with lenders and creditors.   Debt consolidation specialists are able to leverage those relationships to get lower interest rates, better payment terms or other concessions for their clients.   Debt consolidation specialists are experts who know not only what the creditor will able to concede, but what the debtor will be able to afford in terms of monthly payments. The debt consolidation specialist serves as an intermediary between the debtor and creditors until a feasible and mutually acceptable plan is outlined.  Generally the plan includes consolidating all debt into a single payment that may be made monthly to the debt consolidation specialist who in turns doles out the payments to the individual creditors.  Debt consolidation professionals will not intentionally make arrangements that will put a debtor in a position to fail.

Debt Consolidation Loans

Another popular form of debt consolidation is a debt consolidation loan.  This is perhaps the most common form of debt consolidation, and it consists of the following:

•    The overburdened debtor applies for a debt consolidation loan.
•    The lending financial institution or debt consolidation company issues a new loan for an amount that will cover payment of all of the debtor’s outstanding debt in full.
•    The debtor uses the newly borrowed funds to make final, lump sum payments on all his outstanding debts.  Sometimes the loan is disbursed directly to the creditors as payment.

If it sounds pretty simple, that’s because it is.  Of course different banks or debt consolidation companies will have different requirements, but as long as you’re able to get approved, you should be able to simplify your life and improve your debt scenario with this method.

You may be wondering what the improvement is, since the new loan will leave you in roughly the same amount of debt you had before.  The advantage lies in the interest rate savings that debt consolidation offers.  Debt consolidation loans are likely to carry a much lower interest rate than those carried by your various credit cards and other types of debt.

In addition to that, you’ll be simplifying your life by having just one substantial monthly payment to make rather than several smaller ones to keep track of.

Whether you consider working with a debt consolidation specialist or borrowing a debt consolidation loan, make sure to ask a lot of questions and read all the fine print.

Resources

For more information the debt consolidation loans FAQ at ThinkMoney.com may be useful.